Five Point Holdings, LLC — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Five Point develops mixed-use planned communities in California, including Valencia, Candlestick and The San Francisco Shipyard, and Great Park Neighborhoods. Financial statements are unaudited.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Consolidated revenue | $5.7 million | $4.9 million; up 16.7% |
| Net loss | $9.7 million | $36.8 million |
| Net loss attributable to Five Point | $4.5 million; $0.07 per Class A share | $17.1 million; $0.25 per Class A share |
| Operating cash flow | $(21.6) million | $(58.0) million |
| Cash and cash equivalents, March 31 | $106.6 million | $131.8 million at December 31, 2022 |
| Notes payable, net | $621.0 million | $620.7 million at December 31, 2022 |
The smaller year-over-year net loss primarily reflects the absence of $19.4 million of prior-year restructuring expense, lower selling, general and administrative expense, and improved equity earnings from unconsolidated ventures. SG&A fell 18.1% to $13.8 million. Revenue growth mainly came from Great Park management services; reported land sales were minimal, including a $(25,000) land-sales adjustment. No land sales closed at the Company’s communities during the quarter.
Inventories were $2.26 billion, total assets $2.88 billion, and total liabilities $996.7 million at March 31. Consolidated total cash, including restricted cash, was $107.6 million. Cash decreased by $25.2 million during the quarter. Operating cash use included ongoing development spending, partly offset by $17.7 million of Valencia public-infrastructure reimbursements. No margin measure is clearly presented as a consolidated headline metric.
Segments and material changes
- Great Park reported segment profit of $4.5 million, compared with a $2.1 million loss in Q1 2022. Its results include 100% of the Great Park Venture for segment reporting, although Five Point owns 37.5% and accounts for it under the equity method. The venture had $8.6 million of land-sale revenue and no home-sale revenue in Q1 2023; the prior-year quarter included $17.2 million of home sales.
- Valencia reported a $2.4 million segment loss; San Francisco reported a $1.0 million loss; Commercial reported a $0.2 million loss. Segment results include unconsolidated ventures and do not equal consolidated results.
- Management said SG&A reductions reflected cost rationalization and an approximately 38% headcount reduction since the end of 2021. The 2022 comparison included executive-transition and layoff-related restructuring charges.
- Guest builders sold 75 homes at Valencia in Q1, up from 49 in Q4 2022, and 255 at Great Park, up from 113 in Q4 2022. These are builder home sales, not Five Point consolidated home-sale revenue.
Liquidity, debt and outlook
Management reported $231.6 million of liquidity at quarter-end: $106.6 million of cash plus $125.0 million available under an undrawn unsecured revolving credit facility. The facility matures in April 2024 and has a conditional one-year extension option. The Company’s $625.0 million of 7.875% senior notes mature in 2025. All consolidated debt is fixed-rate; the notes’ estimated fair value was $563.8 million versus a $621.0 million carrying value.
Management expects to meet cash requirements for at least the next 12 months using available cash, venture distributions, management fees, land-sale proceeds, Valencia public-financing reimbursements and financing access. It expects significant Valencia horizontal-development spending over the next 12 months and believes funding is sufficient for planned horizontal development for several years. Management said builder demand could support residential and commercial land sales during the remainder of 2023, while noting uncertainty around interest rates and broader economic conditions. No quantified revenue or earnings guidance was provided.
Risks, contingencies and unusual items
- The San Francisco Shipyard land-transfer schedule remains uncertain. Navy environmental retesting and related investigations have delayed transfer of approximately 408 acres and may further delay or impede development. A putative class action alleges wrongdoing related to testing and remediation; the Company says it cannot predict the outcome and believes it has defenses.
- Outstanding performance bonds were $320.0 million, principally related to Valencia. The San Francisco Venture also had maximum guarantees of $198.3 million for park and open-space obligations. These are contingent obligations, not reported debt balances.
- The Company recorded a $173.2 million tax receivable agreement liability; no payments were made in the quarter, and management does not expect payments for several years based on current projections. Related-party reimbursement payments of approximately $9.0 million expected in Q1 2023 were deferred to Q1 2024, dependent on an extension to the related EB-5 loan maturity.
- Great Park legacy-interest holders remained entitled to $66.3 million of future distributions at March 31. The Company also guaranteed performance of the San Francisco Venture’s Class C unit redemption terms, up to $25.0 million.
- Management identified real-estate and California market conditions, interest rates, development costs and approvals, environmental matters, litigation, and access to financing as risks. It reported no material change in risk factors from the 2022 Form 10-K. Disclosure controls were assessed as effective.
Investor verification points
- Track actual land closings, reimbursements and development cash spending against management’s 2023 demand expectations and liquidity outlook.
- Review the timing and conditions for the $9.0 million deferred related-party reimbursement and the April 2024 revolver maturity and extension.
- Monitor Navy retesting, land transfers, litigation and development progress at The San Francisco Shipyard.
- Assess the scale and timing of performance-bond, municipal-guarantee, Class C redemption and tax receivable agreement obligations.
- Distinguish consolidated revenue and earnings from segment results, which include 100% of certain unconsolidated ventures.